UK banks expect funding costs to fall - Bank of England

LONDON

A bus passes the Bank of England in the City of London February 23, 2013.

Reuters/Neil Hall

LONDON (Reuters) - British banks and building societies expect funding costs to fall further over the coming three months, and for customer deposits to continue to replace wholesale market funding, a Bank of England survey showed on Monday.

Lenders also said they expected to increase capital levels significantly over the next three months, though their demand for capital was weakening due to an improved economic outlook, shrinking balance sheets and less appetite for risk.

Last week the BoE's bank regulation arm, the Prudential Regulation Authority, told British banks to raise a further 13 billion pounds ($20 billion) of capital as it seeks to curb risk in the financial sector.

The results are from a survey of banks and building societies carried out by the Bank between May 10 and May 31.